Nine months after near-bankruptcy in Mexico triggered a worldwide debt crisis, many bankers are worried that a second wave of trouble is approaching.
Two big borrowers, Venezuela and Nigeria, have not yet negotiated new financial packages but are sure to need them in coming months. Others, most notably Brazil, have struck deals with their creditors that already are showing signs of strain.
"The chances of not getting into a second wave are just about nil," Norman Bailey of the National Security Council said last week at a Washington seminar on the debt problem.
Another monetary expert concurred: "Everyone agrees that 1983 is not the end of this process."
Most experts agree that the world financial system stood up to the first wave of financial crises and emergency debt renegotiations surprisingly well. But could it survive the next round as easily?
"I don't see why it shouldn't work as well in the second round as in the first," one participant in many of the negotiations said. "We've all learned quite a bit."
One thing they have learned is that a crucial ingredient for handling the debt crisis is cooperation: between banks, borrowing nations, richer governments and international institutions like the International Monetary Fund in Washington. Optimists hope this cooperation will continue.
IMF Managing Director Jacques de Larosiere pointed out last week that 11 of the 20 largest Third World borrowers are now under IMF programs.
As successive countries have declared themselves unable to pay all their bills and service their debts without new money and more time, the IMF has orchestrated deals between them and their bankers to keep the system functioning:
* Borrowing nations have for the most part accepted severe economic policies aimed at reducing their dependence on foreign cash, despite the pain of higher unemployment and lower living standards that these alternatives involve.
* Commercial banks have agreed, albeit grudgingly, to roll over many of the debts due them this year and to lend new medium-term money.
* The IMF has designed the debtors' new austerity programs, pushed banks to keep on lending and lent some money itself.
* The United States and other governments have come up with emergency short-term cash--often dispensed through the Bank for International Settlements--for Mexico, Brazil, Chile, Yugoslavia and several other nations.
The end result has been that no country has been pushed into default and most are still paying the interest on their debts (although there have been several interruptions). The three largest borrowers--Mexico, Brazil and Argentina--have gotten IMF loans and have already started to implement economic policies designed to shrink their imports and boost export earnings. Commercial banks from around the world have agreed to lend $10 billion in new money to these three countries alone for 1983 and to postpone about $45 billion of their debts that are due this year. Other joint financing packages are being arranged for smaller borrowers, from Chile and Peru in Latin America to Hungary and Yugoslavia in Eastern Europe.
De Larosiere declared last week that "the system has been tested and remains intact."
The concern of some bankers and other experts is that the system may not stand up so well to the further testing expected this year and next. They point to the growing stresses in the Brazilian deal, where smaller regional banks have not come up with all of the money that they promised and the big banks are unwilling, at least as yet, to fill the gap.
They worry about whether Venezuela and Nigeria, both of which have elections coming up this year and whose finances are in a state of confusion, will be willing to take the IMF medicine at all, and about whether others like Mexico and Brazil will continue their regimen, as unemployment climbs and real incomes decline. Governments in the United States and elsewhere also may be less willing or less able to put up emergency money in the future, although Treasury Secretary Donald T. Regan hinted on Friday that the United States may consider lending Brazil more to help it out of its current liquidity crunch.
The problem is not simply going to go away. While banks have gotten cold feet about international lending and probably would like to reduce the amounts they have at risk in the Third World, developing nations will need them to lend more--not just in 1983 but in future years--if they are to avoid economic collapse.
Just as the United States was a net borrower from the rest of the world while it was building up its economy in the past, so the industrializing nations of today need to borrow from overseas to invest and develop their economies, economists point out. Moreover, today's extraordinarily high interest rates, after allowing for inflation, mean that many nations have to run up bigger debts just to pay interest on their old debts.
Thus, even if the financing packages agreed upon for this year are enough, many borrowers, including big ones like Mexico and Brazil, will have to raise new money next year and thereafter. One banker commented recently that "involuntary lending" to these and other borrowers is likely to continue for years to come.
Such involuntary and painstakingly negotiated lending is naturally much more difficult to arrange, and harder to be sure of, than the voluntary lending of the past. Banks do not want to be pushed by countries or by the IMF into lending more than is absolutely necessary or more than their "fair share." But if they do not lend enough, they undermine the IMF economic programs and risk pushing borrowing nations into default or economic disaster.
Already there are several cases where banks are lending de facto--by allowing countries to run up arrears and not declaring them in default--rather than lending more through formal, new loans. Brazil has sizable arrears now, and Nigeria is overdue on trade and suppliers' credits in amounts that are estimated from $1 billion to as high as $6 billion.
This back-door financing can only go on for a short while, most bankers believe, before the money needs to be consolidated into a new loan or the countries slash their imports.
The IMF is assuming that commercial banks will increase their net lending to the Third World by 7 percent this year, which is equivalent to $15 billion to $20 billion. De Larosiere characterized this as a "crucial element" in managing the debt problem and said it was far below the average yearly increases of 20 percent in the heyday of international banking between 1973 and 1981.
But some commercial bankers speculate that net lending will more likely decline this year than increase at all. For example, Yves Laulan, of Societe Generale in France, predicted a decline of 7 percent to 8 percent in international bank lending in 1983.
One senior monetary source said he was "not inclined to be too impressed" by such comments, pointing out that in the mid-1970s there was also widespread concern that banks would not be able to lend developing nations all the money that they would need. Another Washington official said that "last year was much more critical. . . . It was not clear that everyone would participate" in the rescue packages. "But now we are on track," he added, "there's no reasons why anyone should back off."
The experience of the last few months makes this official more confident than he was some months ago that future problems could also be solved. Most officials seem to agree with this cautious optimism.
The key will likely be the course of the economic recovery now underway in the United States and beginning in some other industrialized nations, and what happens to interest rates. As the World Bank pointed out earlier this year, many of the problems that individual countries have faced in meeting their debt payments have been a result of collapsing commodity prices, high interest rates on existing debts, and weak markets for their exports.
The main reason for hoping that the debt crisis will diminish is that world recovery is already beginning to increase commodity earnings, and will, if it continues, expand the market for all developing nations' exports.
Most debtor nations will still need to go on borrowing from overseas, even if their trade position does improve. But declining balance of payments deficits and a healthier world economy could also have a big impact on bankers.
This crisis has shown that, for many big borrowers, a chief determinant of their creditworthiness is, paradoxically, whether or not they are perceived by international bankers as creditworthy, one Washington official said. This is because many developing nations depend on overseas borrowing in order to service debts and buy imports. If the capital markets are suddenly closed to them, they will quickly run out of cash. Hence if bankers stop lending to countries on the grounds that they are not creditworthy, they are likely to turn this into a self-fulfilling prophesy.
Conversely, if bankers start to lend more freely again, this would ease the financial difficulties for borrowers and perhaps set off a vicious circle. Few observers expect such optimism to materialize in the near future, however. The problem for the financial system is more likely to be keeping unwilling banks lending, while for the borrowers themselves it will be coping with the pain of adjusting to less cash.